Moody threatens to lower U.S. credit rating

The stock market may seem stable and maybe you have a new job, but there are serious issues underlying the structural integrity of the United States economy. In fact, Moody is reporting that if lawmakers fail to make serious, long-term debt reductions plans by next year they are likely to lower the United States’ credit rating.

English: Chart of the components of United Sta...

English: Chart of the components of United States public and private debt since 1945 as a fraction of GDP. (Photo credit: Wikipedia)

There are automatic cuts expected next year if lawmakers fail to act, but opponents of the current “do nothing” politics argue that the spending cuts and tax increases which will automatically go into effect beginning in 2013, will cause a short term recession. Proponents of the plan don’t like it much either but recognize that something must be done and cuts are needed, in addition to more severe long-term debt reduction efforts to stop our future economic crisis.

The current threat from Moody should not be a surprise. In fact, many economists were surprised that they did not make the move sooner after Standard & Poor, who was the first agency to lower the country’s AAA credit rating last year, made their unprecedented move. Moody and Fitch stood their ground, although they did lower their outlooks from stable to negative last year, this all on the cusp of the stand-off in Congress during the debt-ceiling debate.

This year we face another issue: to allow the impending tax increases and spending cuts to take affect or to make some serious decisions about the fiscal policies in the U.S. Moody acknowledges that if Congress lets the automatic actions occur their negative outlook will remain unchanged.

Moody noted, “[The agency] would then need evidence that the economy could recover from the shock before it would consider returning to a stable outlook.”

Would another downgrade affect the United State?

 

It is unclear how another downgrade in the U.S. credit rating would impact the U.S. After Standard and Poor downgraded the U.S. credit rating stocks did decline and Treasury bill trading slowed. Some economist argued, however, that the markets were less impacted by the lowered credit rating and more by what analyst call “economic fundamentals.”

What may be helping the United States right now are the fiscal and political issues in Europe. Although the United States may seem like an unsafe bet, the U.S. still seems safer than other foreign options.

But last week debt surpassed $16 trillion and 100 percent of GDP. This fact seemed eerily under-reported, but this is a big deal and it is detrimental to the health of the nation, especially when we owe more to our creditors than the total economic output of the United States’ economy in a year.

Add high unemployment, bankrupt cities, underfunded retirement accounts and disability plans to the already skyrocketing debts and we have a recipe for economic disaster sure to hit in the coming years. The question is not why Moody is considering lowering our credit rating but rather, why have they not done so already and why aren’t more people concerned.

If you are facing economic crisis you are not alone. Talk to a bankruptcy lawyer about more information about what you can do to save your financial future.

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Beth

Beth L. is a content writer for Better Bankruptcy. Good content and information is one of many methods we utilize to bring you the answers you need.